Investing in Automation

Artificial intelligence, the Internet of Things and machine learning have pushed the scope of what’s possible to a near-infinite horizon.

Half a century ago global companies required hundreds of thousands of workers to stay on top. By contrast, Facebook – with a market cap exceeding £350bn[1] – employs around 15,000 people[2]; Alphabet – which owns Google and has a market cap of around £800bn[3], employs 61,000.[4] Niantic, the unicorn behind Pokémon Go, is valued at around $3bn and rumored to have fewer than 100 staff.

There’s little doubt about it: people are becoming surplus.

Rise of the machines

And it isn’t just software benefiting from technical developments. After all, machines don’t care where they work, don’t eat or sleep, and don’t complain about long hours. In theory, you could effectively run a business from a swanky top-floor office in London while a collection of mechanical workers assembled, packaged and shipped your products from a warehouse in the cheapest possible locations. There’d be no need to hire a skilled workforce; the work of thousands of people could be carried out by a handful of digital substitutes.

‘Farming, factory work, data entry and especially automated driving – both taxis and long-haul trucking – will be largely automated by 2025, so investors are jumping with both feet into promising endeavors,’ reads one Forbes article.

While those currently employed in such work may undoubtedly see the downside of this exercise. Due to their roles filled by their chromatic compatriots. The potential for companies and, by extension, investors is massive.

The question then is how to move sustainably into automation.

A huge opportunity for investors

From an investment point of view, the opportunity is incredible.

Needless to say, companies that can develop automation technology and execute it well will be in high demand – their selling point will be making other businesses more efficient and cost effective. Great automation technology does repetitive, data-based or dangerous work so people don’t have to. It replaces some roles, but opens up others, resulting in a better quality of life for us mortals.

This is one side of the coin; the other side looks a bit like Blade Runner.

In making it possible for companies to get vastly wealthier while employing ever fewer people, the social inequalities inherent within society are exacerbated.

The next sector ripe for automation?

With technological startups springing up left, right and center, it’s difficult to pinpoint exactly where the next automation hotspot will be. Saying that, a recent study by Citigroup found that automated banking could replace 30% of bank jobs over the next decade.

Perhaps not much of a surprise, with fintech startups raising more than $22.3bn in 2015[5] – a figure projected to continue growing through 2017.

With big data waiting in the wings, financial adviser bots can trawl huge amounts of information to make split-second decisions. Perhaps they’d lack the certain je nais se quoi of their human counterparts, but their knowledge and logic would be impeccable.

Investing in early stage businesses involves a high level of risk, including illiquidity (inability to sell assets quickly or without substantial loss in value), lack of dividends, loss of capital and dilution risks and it should be done only as part of a diversified portfolio. Your capital is at risk.

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About the author

Lily Bridgwood

Lily is the Partnerships Associate at OFF3R. She has previous work experience in both the corporate and start-up environments. She joined the OFF3R team in October having recently graduated with First-Class Honours in International Business from the University of Edinburgh.

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